Opportunities & challenges cannabis entrepreneurs face in 2019

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Marijuana business opportunities, Opportunities & challenges cannabis entrepreneurs face in 2019

Marijuana professionals will have an abundance of business opportunities, questions and challenges on their radar in 2019. What follows is an overview of nine of the most important.

1. Is there potential for a federal legislative breakthrough?

What is the probability of federal marijuana reform in 2019 given Washington DC gridlock and the likely focus on immigration, infrastructure and investigations related to President Donald Trump?

Sen. Cory Gardner, a Republican from Colorado, recently was rebuffed in his long-shot attempt to attach the STATES (Strengthening the Tenth Amendment Through Entrusting States) Act to the successful criminal justice reform bill.

Some industry insiders still believe the legislation, which would allow states to determine their own approach to MJ legalization and resolve federal banking and tax issues that cannabis firms face, has a shot because of its bipartisan backing by 10 Senate co-sponsors and the flip of the House to the Democrats in 2018.

Others believe the cannabis industry, given continued resistance to broad legalization by Senate Majority Leader and hemp champion Mitch McConnell, would be better off to focus on less-controversial reform – say medical marijuana.

2. Next attorney general

It’s tough to predict U.S. Attorney General nominee William Barr’s approach toward the cannabis industry.

Barr took a hard-line stance against drug offenders in the 1990s, when he held the same position for late President George H.W. Bush.

In a recent op-ed, Barr and two other former attorneys general praised ex-AG Jeff Sessions’ decision during his tenure to return to tough policies against drug dealers.

But the recently enacted criminal justice reform eases sentencing rules for drug offenders.

The question of how Barr now views the marijuana industry could come up at his Senate confirmation hearings.

Even if he still holds a war-on-drugs mentality, it remains to be seen if Barr can he be as anti-cannabis as Sessions, in the wake of criminal justice reform and at a time when special counsel Robert Mueller’s Russia investigation is likely to take center stage.

3. More state cannabis legalization and more business potentials

While 2018 saw even more gains in the marijuana legalization movement, there are still plenty of states left to reform.

Some of the top targets marijuana firms are keeping an eye on in terms of launching or expanding their businesses include Illinois, New Jersey and New York – three states in which lawmakers are already seriously discussing bills to legalize adult-use cannabis.

4. Sharpened financial insights ahead

Investors will get a better look under the hood of dozens of U.S. and Canadian marijuana firms in 2019.

More than 50 U.S. cannabis companies are now trading on the Canadian Securities Exchange (CSE) – with more than half of them listing in 2018 as they race to raise capital to scale their operations.

Meanwhile, Canada’s largest cannabis firms found their way onto the New York Stock Exchange (NYSE) and Nasdaq in 2018 – including Cronos Group (Nasdaq), Canopy Growth (NYSE), Tilray (Nasdaq), Aurora Cannabis (NYSE) and Aphria (NYSE).

The listings come with the added work of public quarterly earnings filings and other key disclosures that detail operations, performance and other key company measures for shareholders and perspective investors.

As the filings ramp up in 2019, investors will have a clearer view of top performers and industry laggards.

5. Repercussions of the official end of U.S. hemp prohibition

This month marks the removal of hemp from the U.S. Controlled Substances Act – the most significant change to American drug policy in five decades.

Under the new Farm Bill, the legal door is now open for major global brands and investors to enter the U.S. cannabis industry, so long as their products have no more than 0.3% THC.

Just as important, the legal change removes business barriers for countless hemp companies navigating a patchwork of state regulations on how hemp can be grown and sold.

Entrepreneurs will be watching the U.S. Department of Agriculture and the Food and Drug Administration in 2019 for signals about how the government wants to see the plant’s THC levels regulated and how cannabinoids can be incorporated into consumer packaged goods, from skin creams to snack bars.

Marijuana professionals, for their part, are keeping close watch because the change could mean more legal business opportunities for MJ companies that want to diversify into a new plant.

Additionally, the law could open a channel for marijuana companies to access public markets and other financial tools unavailable to companies selling Schedule 1 drugs.

6. More stability in California’s MJ industry

The coming 12 months will bring big changes for California cannabis businesses, and the state’s industry will likely see a path toward maturity – with hurdles, of course.

Some stability for the state’s marijuana companies is likely on its way, at least in a regulatory sense.

California finalized its industry regulations, and although those have yet to be formally approved, it at least gives operators a road map for how they can set up operations and begin to settle.

There are massive changes coming, however, including the opening up of the Los Angeles market and probably dozens more cities and counties that have yet to allow MJ licensing.

So … stabilization in the Golden State?

Yes, for some. For others, it’s going to continue to be a bumpy ride.

7. Canadian bubble pops or deflates

Canada has already established itself as the world cannabis leader – but many are waiting to see how the field balances once the nascent industry matures a bit more.

There’s certainly money to be made in marijuana around the globe, but Canada’s track is likely unsustainable. The question is whether the bubble will burst or merely deflate.

Some of Canada’s largest players are already finding their positions being called into question.

Aphria’s management was accused of playing a “shell game” with its growth strategy, for example.

While analysts say it’s common for new industries to see this kind of spike at the start – and that there’s still room for lofty valuations – some experts suggest the market will start to balance itself over the next year, particularly as more countries look to build out their own domestic markets.

8. More countries could open the door to adult-use cannabis

Marijuana is quickly becoming more broadly accepted around the globe, which is a trend that is likely to continue through 2019.

While international players focused heavily on investment in Latin America, legalization of medical marijuana in South Korea and Thailand could signal the beginning of that trend in Asia.

It’s highly likely that we’ll see even more adoption of medical marijuana programs this year, even in countries that have been traditionally hesitant.

But it’s not just MMJ where there could be expansion.

Countries that could look at legalizing recreational cannabis this year include Mexico, Luxembourg and New Zealand.

While legislation may be passed, it’s not likely that we’ll see sales commence in these countries during 2019.

9. Cannabis research outlook could advance

The prospects for cannabis research stand to greatly improve in 2019 as the political barriers and stigmas that stifled studies in years past fall.

The biggest progress will be in hemp, thanks to the passage of the Farm Bill.

The small number of businesses and universities that undertook limited hemp research permitted by the 2014 Farm Bill will rise as growing demand from big mainstream companies for CBD and hemp fiber and grains fuels demand for new genetics.

Progress will be slower in marijuana.

The Trump administration seems unlikely to move on an Obama-era initiative to expand – from one – the number of institutions with federal permission to grow cannabis for research purposes, and efforts to pass medical marijuana research bills in Congress have languished.

But federal inertia hasn’t completely undermined studies, as many businesses, universities and other institutions with cannabis research ambitions have either imported Canadian cannabis or partnered with Canadian researchers.